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IN THE UNITED STATES COURT OF FEDERAL CLAIMS __________________________________________ ) AMBASE CORPORATION AND ) CARTERET BANCORP, INC., ) ) Plaintiffs, ) ) and ) ) FEDERAL DEPOSIT INSURANCE ) CORPORATION, ) ) Plaintiff-Intervenor, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) __________________________________________)
Civil Action No. 93-531C (Judge Loren Smith)
PLAINTIFFS' MOTION TO SUBMIT PARTY ADMISSIONS AS SUBSTANTIVE EVIDENCE Pursuant to FED. R. EVID. 801(d) Plaintiffs AmBase Corporation and Carteret Bancorp, Inc. ("AmBase"), hereby move for leave to file excerpts of Professor Roy C. Smith's deposition testimony, taken on October 16-18, 2007, for use as substantive evidence in this case. Specifically, AmBase wishes to submit the following portions of Professor Smith's deposition (attached hereto as Ex. A): 4:12-4:24; 7:11-7:17; 8:1-8:9; 54:10-54:23; 55:11-55:22; 58:7-59:19; 71:2073:13; 83:25-84:24; 92:7-92:20; 93:3-94:8; 94:16-94:20; 97:3-99:20; 112:2-112:4; 117:2-118:3; 118:7-119:6; 119:7-119:16; 122:14-124:7; 125:17-126:16; 128:2-129:3; 129:12-129:18; 135:9135:15; 136:15-137:5; 138:12-138:19; 141:2-141:19; 142:14-142:25; 146:9-146:23; 153:23154:13; 156:19-157:12; 157:20-158:15; 161:11-161:24; 164:7-164:13; 165:3-165:14; 165:23166:10; 167:17-167:21; 169:5-169:9; 169:21-170:3; 172:19-173:11; 174:1-175:11; 176:13-
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177:2; 181:2-181:12; 204:17-205:5; 208:13-209:2; 210:18-210:23; 234:13-235:4; 282:14-283:4; 307:16-307:23; 315:18-315:25; 348:25-350:5; 378:9-380:18; 382:21-383:3; 383:6-383:18; 383:25-384:23; 398:12-398:24; 407:13-407:24; 409:3-409:11; 420:11-420:23; 421:20-422:7; 426:18-427:20; 428:11-428:20; 434:10-435:14; 438:7-439:25; 441:19-443:4; 443:24-445:7; 446:22-448:1; 452:20-453:5; 464:23-467:20; 507:16-509:14. This deposition testimony is admissible under FED. R. EVID. 801(d)(2)(C). 1 DISCUSSION I. Requirements for Admissibility Under Rule 801(d)(2)(C) FED. R. EVID. 801(d) provides, in relevant part: The Court ordered AmBase to file its Appendix A submissions by December 21, 2007. Order of April 13, 2007 (Doc. 217). Appendix A of this Court's Rules specifies that "[a]ny party intending to present substantive evidence by way of deposition testimony, other than as provided by Fed. R. Evid. 801(d), shall serve and file a separate motion for leave to file the transcript of such testimony." RCFC Appendix A, ¶15(b) (emphasis added). AmBase seeks to designate Professor Smith's testimony only under Fed. R. Evid. 801(d), and thus was not required to file this motion as part of its Appendix A submissions. See Globe Sav. Bank, F.S.B. v. United States, 61 Fed. Cl. 91, 96 (2004) (noting that "this Court's case management procedures . . . specify that a separate motion be filed for admission of a deposition pursuant to RCFC 32(a) but not under Fed. R. Evid. 801(d)(2)"); Order Granting-In-Part Plaintiff's Motion to Admit Deposition Testimony as Substantive Evidence at 2-4, Anchor Sav. Bank v. United States, No. 95-39C (Fed. Cl. May 17, 2005) ("Anchor Order") (attached hereto as Ex. B) ("Paragraph 15 by its own terms does not apply to deposition testimony that is presented at trial pursuant to Fed. R. Evid. 80 1 (d), i.e., deposition testimony that is characterized as non-hearsay . . . ."); Glendale Fed. Bank, FSB v. United States, 39 Fed. Cl. 422, 425 (1997) (admitting expert witness' deposition testimony "as admissions against the Defendant" pursuant to Fed. R. Evid. 801(d)(2)(C) without referring to RCFC 32(a)). See also Pls.' Mot. to Designate Dep. Test. for Trial (Doc. 244) at 7 n.1 ("AmBase nevertheless reserves the right to move for leave to designate additional deposition testimony that may be admissible under FED. R. EVID. 801(d)."). Indeed, as explained below, this Court's rule concerning the designation of an expert's deposition testimony as an admission of a party opponent instructs that a motion such as this one cannot be filed until trial has begun. See Glendale, 39 Fed. Cl. at 424-25. In Glendale, this Court held that "classic independent experts brought in for trial" do not qualify as agents under Fed. R. Evid. 801(d)(2)(D), but rather as parties authorized to speak under Fed. R. Evid. 801(d)(2)(C). 39 Fed. Cl. at 424. Accordingly, AmBase brings this motion under the latter Rule. If, however, the Court revisits and reverses this ruling, then AmBase respectfully requests that the Court also treat this as a motion to designate under Rule 801(d)(2)(D). 2
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(d) Statements which are not hearsay. A statement is not hearsay if-- .... (2) Admissions by party-opponent. The statement is offered against a party and is . . . (C) a statement by a person authorized by the party to make a statement concerning the subject. Deposition testimony satisfying the requirements of this rule need not "fall within a provision of RCFC 32 to be admissible," for "Fed. R. Evid. 801(d)(2) provides an independent ground for admission of deposition testimony." Globe, 61 Fed. Cl. at 95-96 (quotation marks omitted). See also RCFC 32(a)(1) ("Any deposition may be used by any party for the purpose of contradicting or impeaching the testimony of deponent as a witness, or for any other purpose permitted by the Federal Rules of Evidence.") (emphasis added); Anchor Order at 4-6. Thus, so long as AmBase can demonstrate that designated deposition testimony satisfies the requirements of Rule 801(d)(2), it may be admitted as evidence at trial. See Long Island Sav. Bank, F.S.B. v. United States, 63 Fed. Cl. 157, 163-65 (2004); Globe, 61 Fed. Cl. at 94-97; Anchor Order at 4-6. "It is a widely accepted rule that admissions of a party-opponent under Rule 801(d)(2) are accorded generous treatment in determinations of admissibility." Globe, 61 Fed. Cl. at 96 (quotation marks omitted). Thus, deposition testimony may be used at trial as the admission of the United States as party opponent under Rule 801(d)(2)(C) so long as it meets two straightforward requirements. First, it must be an "admission." "[A] `statement' is an `admission' for the purposes of the rule simply if it benefits the party offering it." PG&E v. United States, 73 Fed. Cl. 333, 440 (2006). In other words, the statement need not be "against interest" or "inculpatory," Globe, 61 Fed. Cl. at 97. Second, the statement must be "made by `a person authorized by the party to make a statement concerning the subject.'" PG&E, 73 Fed. Cl. at 440. Deposition testimony satisfying these requirements is admissible as substantive evidence without further showing. The movant "need not demonstrate that any of the declarants whose
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deposition testimony it seeks to admit at trial . . . will be unavailable as witnesses at trial." Long Island Savings Bank, 63 Fed. Cl. at 164; accord Globe, 61 Fed Cl. at 95. 2 Rule 801(d)(2) is not a rule of convenience or necessity justified by witness unavailability. Instead, Rule 801(d)(2) recognizes that party admissions have circumstantial guarantees of reliability that substitute for the guarantees of in camera observation, oath, and cross examination. Thus, admissions constitute, and the Federal Rules treat them as, reliable and independent substantive evidence. Accordingly, the concerns that motivated the common law's preference for live testimony are not implicated by designations under Rule 801(d)(2). As this Court has recognized, "admissions of a party opponent are not hearsay. The common law's preference for live testimony has no bearing on the use of party admissions as evidence." Long Island Savings Bank, 63 Fed. Cl. at 163. See also Globe, 61 Fed. Cl. at 94-95 ("As Professor Wigmore explains, admissions `pass the gauntlet of the hearsay rule, which requires that extra-judicial assertions be tested by cross-examination, because the declarant, in the circumstance of making an admission, is "the only one to invoke the hearsay rule and because he does not need to examine himself.'") (quoting 4 John Henry Wigmore, Evidence in Trials at Common Law § 1048, at 4 (James H. Chadbourn ed., 1972)). The Advisory Committee's Note to Rule 801(d) explicitly makes this point: "Admissions by a party-
2
In response to AmBase's Motion to Designate Deposition Testimony for Trial (Doc. 244), which relied in part on Rule 801(d)(2) and the analyses of that Rule in Globe and Long Island, the government stated that it "respectfully disagree[d] with the[se] cases . . indicating th[at] Fed. R. Evid. 801(d)(2)(D) constitutes an independent basis for admitting deposition testimony as evidence." Doc. 248 at 6 n.1. The government may well disagree with these decisions, perhaps because they force the government to grapple with the implications of its own admissions, but it offered no reasons why the opinions are erroneous under the Rules they interpret. Faced with the cogent analysis of Long Island and Globe, the Government is left to invent nonexistent requirements under the Rules and to appeal to a common law preference for live testimony--a preference, which as explained above, does not even apply to admissions. Long Island, Globe, and the other sources cited in this filing effectively and fully rebut these arguments. In any event, this Court rejected the government's arguments and granted AmBase's motion to designate. See Doc. 250. AmBase respectfully submits that the same course is appropriate here. 4
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opponent are excluded from the category of hearsay on the theory that their admissibility in evidence is the result of the adversary system rather than satisfaction of the conditions of the hearsay rule. No guarantee of trustworthiness is required in the case of an admission." Indeed, even if a witness has testified or will testify at trial, his out-of-court admissions constitute admissible substantive evidence. See, e.g., Cmty. Counseling Serv. v. Reilly, 317 F.2d 239, 243 (4th Cir. 1963) ("[I]t is quite immaterial that the adversary is available to testify at the trial or has testified here. Thus applied, the Rule is a restatement of the long recognized rule of evidence that statements of a party which are inconsistent with his claim in litigation are substantively admissible against him.") II. Professor Smith's Testimony Satisfies the Requirements of Rule 801(d)(2)(C) As noted above, to constitute an admission under Rule 801(d)(2)(D), a statement must be "made by `a person authorized by the party to make a statement concerning the subject.'" PG&E, 73 Fed. Cl. at 440. AmBase seeks admit as an admission of the United States the testimony of Professor Roy Smith, an expert retained by the government to testify in this case. AmBase seeks to admit this testimony because it goes toward proving its case. For example, AmBase seeks to prove that Carteret labored under onerous regulatory restrictions in the aftermath of the breach. Professor Smith, in a portion of his deposition identified above, stated that Carteret was "in jail" after FIRREA. Smith Dep. at 282:14-283:4. The identified testimony thus "benefits the party offering it." PG&E, 73 Fed. at 440. The only remaining question then is this: is a testifying expert a person authorized by the party to make a statement concerning the subject? Id. This Court, in a veritable doppelganger of this case, has answered that question in the affirmative.
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In Glendale, the Court addressed whether the plaintiff in a Winstar case could "introduce deposition testimony of government experts . . . as substantive evidence." Glendale, 39 Fed. Cl. at 422. Specifically, the Court considered whether the expert statements qualified as statements authorized by a party under 801(d)(2)(C) and found that timing is the dispositive issue. The Court explained: By the time trial begins, we may assume that those experts who have not been withdrawn are those whose testimony reflects the position of the party who retains them. At the beginning of trial we may hold the parties to a final understanding of their case and hence an authorization of their expert witnesses who have not been withdrawn. At this point when an expert is put forward for trial it is reasonable and fair to presume they have been authorized. This of necessity includes prior deposition testimony of that expert. This is also a rational and fair point at which to draw the authorization line. . . . The beginning of trial is a critical juncture. By the beginning of trial it is fair to tie the party to the statements of its experts. . . . [T]hey were selected as witnesses and retained through the start of trial because the opinions they held all along, and still hold as the trial begins, are consistent with those of the sponsoring party. . . . [A]n expert witness who is listed as such when the trial begins has been authorized and his or her prior statements are fair game. Id. at 424-25. The Court thus enunciated the following rule: "When an expert witness is put forward as a testifying expert at the beginning of trial, the prior deposition testimony of that expert in the same case is an admission against the party that retained him." Id. at 425. See also Banks v. United States, 78 Fed. Cl. 603 (2007) ("The studies not issued directly by an agency of the United States and instead issued by a private entity hired by the government for the purpose of studying and submitting a report on the erosion at St. Joseph qualify as statements made `by a person authorized by the party to make a statement concerning the subject.'") (quoting FED. R. EVID. 801(d)(2)(C)); PG&E, 73 Fed. Cl. at 438, 440 (finding statements in "documents prepared by contractors under the authority of and for the benefit of" the Department of Energy "could be admitted as non-hearsay under Fed. R. Evid. 801(d)(2)(C)").
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The case at bar easily satisfies the test laid out in Glendale. Trial has begun and the government has retained Mr. Smith as a testifying expert. See Def.'s Final Witness List (Doc. 255) at 2, 8-9 (identifying "Professor Roy C. Smith" as a "witness[] the government expects to present at trial"). Indeed, in its opening statement, counsel for the government explicitly and repeatedly invoked the upcoming testimony of Professor Smith. See Tr. at 109:9-109:18, 116:21-116:25, 129:21-130:3. Accordingly, under the rule of Glendale, the deposition testimony identified above is admissible as substantive evidence. CONCLUSION For the foregoing reasons, AmBase respectfully requests that the Court enter an order admitting the deposition testimony identified herein as substantive evidence at trial. Respectfully submitted, /s/ Charles J. Cooper______________ Charles J. Cooper COOPER & KIRK, PLLC 1523 New Hampshire Ave., N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) Counsel of Record Of Counsel: Vincent J. Colatriano David H. Thompson Jesse Panuccio COOPER & KIRK, PLLC 1523 New Hampshire Ave., N.W. Washington, D.C. 20036 (202) 220-9600 (202) 220-9601 (fax) Dated: February 21, 2008
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CERTIFICATE OF SERVICE I hereby certify that on this 21st day of February 2008, I caused to be served by the Court's electronic filing system copies of the foregoing on the following counsel: David Levitt, Esq. U.S. Department of Justice Commercial Litigation Branch Civil Division 1100 L Street, N.W.--Room 12006 Attn: Classification Unit--8th Floor Washington, DC 20530 Andrew Gilbert, Esq. FDIC Legal Division 550 17th Street, N.W. Room 2098 Washington, DC 20429
/s/ Jesse Panuccio Jesse Panuccio
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Exhibit A
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Roy C. smith New York, NY
October 16, 2007
Page 1
UNITED STATES COURT OF FEDERAL CLAIMS AMBASE CORPORATION and CARTERET BANCORP, INC.,
plaintiffs,
Case No. 93-531
and FEDERAL DEPOSIT INSURANCE CORPORATION, PlaintiffIntervenor,
VB.
THE UNITED STATES OF AMERICA, Defendant.
----------------------------*
Tuesday, October 16, 2007 New York, New York Time: 12:55 p.m. Day 1, Volume 1 Pages 1-193 Day 1, Volume 1 of the deposition of PROFESSOR ROY C. SMITH, taken by Plaintiffs,
pursuant to Notice, held at the offices of Navigant consulting, 666 Third Avenue, New York, New York, on
Tuesday, October 16, 2007 at 12:55 p.m. before
Josephine H. Fassett, a Certified Shorthand Reporter
and Notary Public of the State of New York.
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Roy C. Smith New York, NY
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October 16, 2007
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1 (Expert Report of Professor Roy C. 2 Smith marked as Exhibit Saunders 1, as of 3 this date.) 4 PROFESSOR ROY C. SMITH, 5 the witness, having been duly sworn by a 6 Notary Public, was examined and testified 7 under Oath as follows: 8 EXAMINATION BY 9 MR. THOMPSON: 10 Q Good afternoon. Please state your
11
,
1
3
APPEARANCES:
,
5
6 7
COOPER & KIRK, PLLC
Appearing for Plaintiffs
1~23 New Hampshire Avenue, N.W. Washington, D.C. 20036 BY: DAVID H. THOMPSON, ESQ
8
9
FEDERAL DEPOSIT INSURANCE CORPORATION Appearing for Plaintiff-Intervenor 550 17th Street, N, W, Room 6030
I
Washington. D.C. 20429 10 BY: GARY A KUIPER, ESQ.
11
name.
Roy Smith. Mr. Smith, or Professor Smith, I'm David Thompson with the firm of Cooper & Kirk. I represent Ambase Corporation. With me today are the Chainnan of Ambase, Richard Bianco, and John Ferrara also with Ambase. MR. THOMPSON: And would counsel, or Mr. Kuiper, would counsel like to identitY themselves for the record? MS. GRONER: Sure. I'm Arlene Pianko Groner and I'm representing the United States and I'm also counsel for Professor Smith who's our expert in this case. MR. KUIPER: And I'm Gary Kuiper with A
"
13
UNITED 5TATES DE?ARTMENT OF JUSTICE
Appearing for Defendant
1100 L Street, N.W. Room 7024 W
"
15 16
18
"
ALSO
PRESENT,
RICHARD A. BIANCO, Ambase Chainnan
19
JOHN P. FERRARA, Ambase
20
RlCHARD BIANCO, Son
" " 2 ,.J
25
12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q
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9
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INDEX WITNESS PROFESSOR ROY C. SMITH By Mr. Thompson
PAGE
4
the FDIC. MR. THOMPSON: Off the record for a
moment.
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
EXHIBITS SMITH DESCRIPTION PAGE No.1 Expert Report of Professor Roy C. Smith 4 No.2 Errata to Smith Declaration dated October IS, 2007 52
(Whereupon, off the record.) (Whereupon, resumed.) BY MR. THOMPSON: Professor) have you ever been deposed Q before? A No. Q Okay. And have you ever been retained as an expert witness in a case before? A No. Q Well, let's go over some ground rules then. We can take a break any time you like, my only request is that if there's a question pending, that you'd go ahead and answer that question. Let's try (0 talk one at a time since we have a court reporter here trying to create an accurate record. If I cut you off at any point during this deposition, just let me know that you weren't fmished with your answer. It's certainly my intention to get your full and complete testimony
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Roy C. Smith New York, NY
I
October 16, 2007
Page
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8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 market conditions, do you mean macroeconomic 23 conditions, is that one of the factors? I mean the conditions ofthe market to 24 A 25 detennine whether a buyer wishes to buy the thing
and not truncated. And, if I ask you a question and you answer it, I'm going to assume you understood the question. So, with that, why don't we just jump in and let me ask you: Does the market value of any finn represent the discounted prediction of the finn's future after-tax cash flows? It can reflect that. A Q Does it nonnally reflect that? It might. A Q In what circumstances -In other words, there are other A factors that might influence it. Q What would influence a finn's value other than the predicted future after-tax cash flows? Market conditions. A Q Anything else? A That's a large one, but -Q Well, let me ask you: When you say
l
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A Because it's considered to be a
risk-free investment.
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Q And that's because it's backed by the United States Government? Yes. A Q Is that a reasonable assumption in
your opinion that investors can rely on -A It's a reasonable assumption as long as we're staying within the United States. Q Okay. And sorry about that, I think you accurately anticipated what my question was, but
because we have a court reporter here, just as I'm
going to try to let you finish your answers, if you'll try to let me finish my questions, but let me just get that on the record so that it's all accurate. But is it reasonable for investors to rely upon a guarantee of the United States Government? Yes. A Q Okay. Now you attended the Naval Academy; is that right? Yes. A Q Graduated 1960? 2S A Yes.
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you're trying to sell and that could be, you know, reflecting many different elements. Q Would that be factored into the
i
discount rate?
If you could figure out what it was, A if it changed instantly, you might be able to do so, but people don't always agree on what discount rates are, but there will be a buyer or there won't be at the price you wish to sell and those will be affected by the things.
Q
Do investors look at after-tax cash
12 flows as opposed to pre-tax cash flows? 13 I would suppose they usually do. A 14 Q Why is that? IS Because cash flow isn't cash flow if A 16 it has to take part of it and give it to the 17 Government. 18 Q When selecting a discount rate for a 19 government security. what's the appropriate discount 20 rate? 21 That's the maturity ofthe security. A 22 Q Well, would you add a risk premium? For a government security generally 23 A 24 not. 25 Q Why not?
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Q And then you served our country for four years? Yes. A Q And went to Harvard Business School? Yes. A Q And then you went to Goldman? A Yes. And was Goldman a trading finn at that Q point? It did some trading. A Q What else did Goldman do in 19 -It was principally an investment A banking finn with some trading activities. Q When you say investment banking finn, what do you mean by that? It did underwritings, it did mergers, A it did other corporate finance transactions. Q How many employees were there at Goldman approximately when you started? I don't know, I'd have to guess, I A would say probably 400. Q What position did you have when you fIrst started at Goldman in 1966? I was an associate. A Q And what were your areas of
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opposed to mismanagement and bad underwriting standards? I couldn't allocate a certain A percentage -Q Okay. -~ to you. The economic conditions A were worsening in that period, as everyone knows, but there were plenty of S&L's that didn't suffer the same degree as they did. Q But there were a lot of other financial institutions that were experiencing heavy losses in '90 and '91, correct? That's correct. A Q And Citibank had big losses, didn't it, at that time? A It did. Q And it was technically insolvent, wasn't it? A Technically it wasn't but it was functionally insolvent if you regard the regulators presence in their life as being very substantial in order to hold them up, but -- anyway, that's how it came out. Q And did some sort of Arab sheik make an investment in Citibank in the year '91?
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'82? No. Why not? A It's perfectly acceptable to have an aggressive strategy, that of course means it's a risky strategy, but then it's up to you to execute it correctly, and you could have an aggressive strategy for the purpose of making money but aggressive strategies are riskier than others and may fail. Q So on a prospective basis sitting in 1982 what Carteret did was not irrational? Not per se. One would have to know A more about what their plans for executing their strategy were at the time when they announced it in '82, that's infonmation I don't have. Q Now in the mid 1980s the stock market had a favorable view of Canere!; is that right? A I don't know what you mean by favorable. Q Well, the market capitalization was increasing? Yes, from a very low level. It went A public at a price-to-earnings ratio of about two, which most people would not think to be a very A
Q
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A way.
Yes, in '91. He's still there, by the
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And he's made out pretty well, right? Hehas. Q All right. Now in '90 and '91 the Inc was selling hundreds of billions of dollars of commercial real estate; is that right? That is my understanding but I don't A have infonnation available to me at the moment to say. Q Okay. Did the RTC's sale of assets in '90 and '91 exert downward pressure on the commercial real estate market? It's possible. A Q Isn't it likely just from supply and demand? The commercial real estate market is a A very large market and it does include many things that weren't in the portfolios of the RTC, so to some degree large parts of it were not affected, other parts were, so when you blend them, you get some effect. Q Okay. But do you believe that Carteret's strategy of rapidly expanding its asset base was ill-advised in the early eighties, '81,
Q
A
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
favorable rating but it was at least a rating, and it improved from that somewhat during those years you mentioned but it wasn't as high as some that would be considered outstanding companies. Q But the stock market capitalization doubled in the first couple of years? I think we have a table on this, but I A get what you're saying. It did increase. MS. GRONER: Could you just identify for the record the table you're looking at? THE WITNESS: I'm looking at Exhibit 3. I can't find the part I'm looking for. BY MR. THOMPSON: Q I don't think it has the stock market capitalization, I may have missed it, but. Well, it has the stock price, that's A probably a proxy for the question. This is page 3 of3, Table I, Exhibit 3. It has some stock prices here. Q Okay. So that's a proxy for the market cap A in this case. Q Right. So it starts off in '83 trading nine to eleven and then by --
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A And then it goes down to six and three-eighths to 10 and five-eighths and then it goes to -- then it goes back. Then it goes up to six and five-eighths to 18 and one-eighth and so on, then back, then down to -- so it has increased, the stock market has increased. Q Okay. And Carteret was repeatedly able to access the capital markets in the 1980s; is that right? A It was. Q Okay. Now you conclude Paragraph 9, turning to page 4, by saying, quote, these losses depleted Carteret's regulatory capital and substantially reduced the market value ofthe company. Are the losses you're referring to there the 1990 and '91 losses? A Yes. Q Why would an investor have cared about those losses? Well, how about because it depleted A the regulatory capita] and it substantiaJly reduced the market value. That's one reason they would
care.
Q And what would you expect the stock of a company that announced such losses to do, would it
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Carteret and its parent Ambase. Is it true that losses at a bank are only a problem if the bank doesn't have sufficient capital to absorb them? If a bank doesn't have sufficient A capital to absorb losses, it may become bankrupt, it may become insolvent. If it does have sufficient capital, it may escape insolvency but that doesn't mean it doesn't have problems caused by the bank loss -- by the loan losses. Loan losses are not greatly desirable. Q But in order to understand the seriousness of loan loss, of any particular loan loss it's measured against the capital of the bank; is that right? A It's an indicator of the ability to tolerate the pain before you die. Q Nicely put. Now, what mistaken and misguided management decisions by Carteret are you referring to in this sentence? Well, those are enumerated in the rest A ofthe paragraph. Q Okay. So that's -- let me ask you
just so the record's clear on this.
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go up or down or stay the same? A It's difficult to say, it depends on what, to what extent that information had already been in the market and had been able to be priced by that. Q And do you have an opinion as to whether Carteret's stock price in 1989 and the end of] 989 had taken into account the magnitude of those future losses? A I would suspect not. Q Okay. A They appear to have been a surprise to Carteret. Q And was it-Therefore, they wouldn't have been A announced. Q So it would have been a surprise to
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investors too?
Yes. Okay. Now, let's look at Paragraph 10 and the first sentence, and it says, quote, I find that Carteret's loan losses and Carteret's failure to build sufficient capital to cushion against such losses were the direct result of mistaken and misguided strategic and management decisions made by A
Q
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Can you point to any strategic decision that was made during Mr. Bianco's tenure at Carteret with which you disagree? A No. Q Okay. Now, in the middle of the paragraph in point I you say Carteret decided to, quote, engage in rapid expansion of its asset base by acquiring large amounts of assets and liabilities from failing S&L's without commensurately increasing its capital. Please explain what you are referring to here. The acquisitions of Delray and the A other failing S&L assets which was done with consent and in some cases cooperation of the thrift regulators, done on a basis without Carteret having put up any additional capital really at all, though the FDIC or FSLIC put up 16 million, I believe, and there was some additional borrowings from the Federal Home Loan Bank Board, the addition of these risky assets were not accompanied by a comparable amount of underpinning capital. Q Underpinning tangible capital? A Tangible capital. Q Were the capital markets accessible to Carteret in 1982?
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l6 (Pages 58 to 6l)
Alderson Court Reporting 1-800-FOR-DEPO
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A
The footnotes of the financial
statements usually have some infonnation about it or
as in any -- in terms ofthe disclosure item in any offering of securities and something the companies report on. Q And so when they report the mismatch do they tell you, can you then figure out how much money they're going to make or lose if interest rates move a hundred basis points this way or that? I believe you can. A Q Is that something you typically do
when you invest in a bank's stocks?
I do not. Okay. I do not make that calculation. A Q Okay. How do you -- to what extent do you then try to figure out -- figure in interest rate risk when you're making an investment in a bank stock? I try to make an assessment to the A extent that I can of what degree of exposure they have to serious capital losses because of interest rate mismatching. I may get that information casually or I may get it through the disclosures that they already have but I don't make independent A
Q
the accounting custom of recording the value of loans that they're holding for investment at their historical cost, which is to say, the par, whereas in reality a variety of factors can change that, interest rate changes could make the value of those things go down or up and any change in the perception of credit exposure relative to what it was at the time when the loan was originally priced could also change it. These things are not going to be known by outside observers or readers of financial statements, they're often not known by even the auditors until they do sample test performances to find them out and, therefore, it's difficult to know what the credit risk is, you really have to rely on the management to tell you this in the form of how much they have set aside for
reserves or writeoffs on an annual basis and the
record will tell us that frequently these are not aggressively taken. Q All right. How frequently what are not aggressively taken? Loan losses and writeoffs. A Q Managements are loathe to -They would prefer not to take them to A the full extent that they might.
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efforts to perform my own due diligence on it, however, I don't buy failing S&L assets. Q And just so the record is clear. Have you analyzed Carteret's interest rate risk profile at any point from 1981 through 1992? A I only looked at the information that I saw in the financial statements and the Report of
Examinations.
Okay. A Which were reasonably quiet on these issues during this period because it was not thought to be a particularly serious exposure. Q Okay. Do you consider yourself an
Q
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Q Okay. And they often don't take them to the full extent they should? They often don't, and maybe they A should, but usually it's when ·they get into subsequent trouble that you discover there was this difference in reporting, but that could be explained
as management judgment at the time, it's just
difficult to know. Q And is there some discretion afforded management as to how much of a loan loss they have to take here or there? A Yes, and their auditors have to
consent to it or they wonlt issue a clean opinion.
expert in interest rate risk?
Not as you would define an expert. Q Okay. Now as for credit risk, it's perfectly acceptable for a thrift to have some credit risk; isn't that right? Of course. A A
Q And as an investor how do you measure credit risk?
With great difficulty. It's very hard A to know what a bank is worth from the outside because all of the information is on the inside about the credit exposures. Banks and S&L's have
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Q Okay. And the auditors are to some degree A flexible within limits as to what should and shouldu't be taken. Q Okay. There's usually a discussion. A Q All right. Is it, do you think it's fair to say in your experience a 10 percent range of reasonableness or 20 percent range of flexibility? A I would hope it would be better than, smaller than 10 percent would be the range. Q You'd hope?
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these loans and so many of them failed they must have been doing something wrong. Q I understand. A Whether it was poor credit standards, poor execution of existing standards that went poor or whatever, there are many things that go into how they do it but they did it in a way that had terrible results. Understood, your point, but -- and Q you've also made the point that Carteret waited too long to go to the capital markets. Are there any other instances of mismanagement at Carteret that you can identifY? I've chosen to identifY these in A Paragraph 10. Q Anything that's not in Paragraph 10? A No, ifthere were more, I probably would have added it. Q Now, were Carteret's loans different than other, the loans that other S&L's were making at the time? Well, I'm not aware of any other S&L A with the same track record on their loan portfolio, there may have been some but I'm not aware of it, but it was an unusualIy poor record, so they had --
time felt that they had a burden, and it was considerable, because there were so many loans, so many S&L's in trouble and they had to do the best they could to prevent an industry colIapse and to minimize the taxpayer burden of insuring the whole industry colIapse and they were certainly frightened that the whole industry might in effect have a run on the bank causing difficulties that would be extremely serious for the country. They fult this burden. I think they felt that they should follow a strategy that would do its best to protect or to move along or to delay any worsening of circumstances that might protect, for example, 85 percent ofthe industry even if it meant that some part of the industry would be given one drink, one free drink too many and therefore be endangered by it So I think there's a certainly rational basis for why the regulators did what they did, but in doing it they may have engaged in particular policy making on the. spot which obscured fmancial transparency and engaged in a kind of calculation of regulatory capital in particular that would be unrealistic. Q Was the Government advantaged by
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it probably has to stand out as an example of loan management that was, that was on the lower end of the whole industry. We have data on this, you may realize, we'll come to later. AlI right. Okay. Do you think the Q regulators should have approved Carteret's acquisition of Barton and Delray in 1982? A WelI, I find that question somewhat outside the scope of my assignment here. Q WelI, you talk about the number of instances about lagging regulators and inefficient regulators and so you1re not ~A Yes. You know, you made statements about Q the regulators so -WelI, there was -- that's factualIy A demonstrated. You asked me in particular whether [ thought they should or should not have approved this thing. Q Right. If you don't have an opinion, it's okay, but you make a number of statements about the regulators in the S&L industry and so, you know, 1 want to know whether those general statements had any application for this case. A I believe that the regulators at the
delaying the day of reckoning? They thought so, I believe, because A they thought ifit all happened in an accelerated fonn that would make the fear ofthe industry such that it could have had a stampeding effect, I think they thought that. Q And with the benefit of hindsight, and I know they didn't have that advantage but you do, do you think they were right? A 1 think you could make the case that they were right. 1 have looked at this over the years and I've felt that way but there are others who don't. Q Okay. Why did the other S&L's present a burden to the FSLIC in 1982? MS. GRONER: Excuse me. Ambiguous. Who do you mean by the other S&L's? BY MR. THOMPSON: Q I thought you had said, Professor, that there were other S&L's that were presenting a burden? A Yes, at that time the S&L industry had a number of S&L's suffering from mainly asset liability mismatches which was threatening their capital, including Delray.
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(Pages 82 to 85)
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Roy C. Smith New York, NY
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6 7 8 9 1a II 12 13 14 15 a severe crisis in its savings and loan industry 16 conunencing in 1979 and continuing through the 1980s. 17 Please explain, how did this crisis come about? 18 A It was predominantly a crisis in the
but on the other hand maybe they missed it. Q Do you have an opinion on that with respect to Carteret as to whether you are in a better position to evaluate management as opposed to the OTS officials? A I do not. Q Okay. And what about with respect to the FDIC, do you have any opinion on who's in a better position to judge the institution, yoursel f -A I do not. I do not. Q Okay. All right. Now, turning to Paragraph 13 of your report on page 5, the first sentence says, quote, The United States experienced
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19 mortgage industry, thrift industry, caused by a 20 rapid increase in short-term interest rates which 21 was the method used by these institutions to fund 22 long-term fixed-rate loan portfolios, which is to 2 3 say, they were borrowing very short to fund very 24 long which most students of banking understand to be 25 an unsound way to run a business in that sense. But Page 91
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A Free market. Q . - free market? Okay. And when -A Another example of an awkward regulatory constraint on an industry. Q That had, ultimately had a very negative effect? A If you're going to regulate, you ought to regulate both the same way so they don't get into these mismatch situations, but in this case the spike in interest rates was accompanied by refinancing of the loans at higher interest rates that became higher than the yields they were receiving on the mortgage portfolio they owned, and because they were leveraged more than 10 times to one, sometimes 20 times to one, the rate at which capital was eroded was very rapid. Q And when you say, you know, you should regulate both the same way, is this similar to what happened in the California energy market? AYes, it is actually. I was going to think about it but I decided it was probably an unnecessary contribution by me anyway so why should I lead you to another thing that -Q So the regulators should have had a more sensible regime in place for the S&L's in the
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late seventies; is that fair to say? A Plenty of people have said so. Q Okay. Now you say in the second sentence of Paragraph 15 that, quote, This crisis ultimately cost taxpayers approximately $250 billion and was the most significant financial catastrophe since the collapse of9,000 banking and thrift organizations in 1931 to '34. Closed quote. The $250 billion number, where does that come from? loA Where did it come from? It's an 11 estimate that I and some others have used to try to 12 determine the actual cost to the Government of both 13 insuring the deposits and then receiving the 14 recovery subsequently. There are estimates of the 15 net cost that range from somewhere between 16 150 million and 300 million or so. 17 Q Billion? 18 A Billion. 19 Q Yeah. 20 A And I don't know what it really was 21 but frankly I'm not sure anyone else does either 22 because it's hard to know what all those recoveries 23 were and when they were received and how they got 24 accounted for, but that's our guess. 25 Q And just help me out. Why is it hard
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the S&L industry, it existed since colonial days and it was very distributed throughout the United States and had a lot of political support and this practice was tolerated up until the time when it became problematic. Q Well, and wasn't there a period of time where the Government regulated what the rates were on the deposits? A Yes. Q And so in that regard would there have been any interest rate risk back when the deposits were regulated? A Ironically, had they been restricted by these regulations, then nobody would have deposited their money there because they would have gone elsewhere to get their deposits at higher rates and as a result they wouldn't have made these loans. Or loans would have to be refinanced in some other way at the time. Q Now, did the Government also restrict the rates the S&L's could charge on the loans they made, was that also regulated? A I'm not aware ofthat. Q Okay. So the deposits were at one point regulated but the loans were --
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(Pages 90 to 93)
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to know what was received? Because the receipts from loans and A real estate that was recovered by the FDIC and the OTS took years to work out of and involved interest charges and, you know, all kinds of things, so. 1 haven1t seen a clean accounting on it, and I'm not sure there is one, but some academics have studied it and they have made this range of estimates. And have you written on this, I mean Q this $250 billion number, is that -I haven't written about the number per A se, f've included it in things I've had to say about it, I didn't think it made too much difference if it was 200 or 250 million so I didn't bother to make a further investigation. Q Okay. When you did the calculation were you trying to basically bring it to present value and add on interest? No, this was meant to be the cost at A the time it was incurred. Okay. Q Most ofthose estimates were made at A the time rather than now looking backwards and then putting it in term at any time. Q Okay.
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we've talked about, and how it affected 90 percent of the S&L's by 1981 were losing money, and then in the last sentence you say, quote, The problem was exacerbated by accelerated deregulation of the thrift industry which permitted thrifts to diversify into non-home mortgages and other assets and by lagging ineffective regulators efforts by the FHLBB and the FSLlC which allowed thrifts to attempt to grow out of their problems without adding sufficiently to equity capital and accelerated deregulation. What are you talking about? A Starting with the 1992 Act -Q '82 [ think you meant? A '82, yes, sorry. Did I say '92? Q I think you did. '82 Garn-St Germain I think it was A called. Q Yes. Yes. A And then there were, of course, a little bit of piecemeal deregulation as they went along at the regulator, regulator level itself, for example, deciding on policies relating to goodwill. Q Right. But the idea was to let the S&L's A escape the problems they were in by attempting to
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But when we compare it to the A thirties, we take the 1930s number and adjust it for the present, for the money value in about 1990 which would make it more comfortable. Okay. And how much did that cost? Q A It came out the same as I recall. Q Okay. And the $250 billion, is that the total 198 J through, you know, 1995 number? A It's supposed to be. Okay. I note you cite a number of Q times to Mr. White's book. Have you found that generally to be reliable? I have. A Q Okay. And is it reasonable to assume -A Professor White is a distinguished professor of economics at the Stem School where I teach and he was a member of the Federal Home Loan Bank Board at the time that this was going on. His book on it has been regarded as a very authoritative
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compete in other businesses that they had never been in, Q And wasn't the idea also to try to get the healthy thrifts in to help the sicker thrifts? A To the extent there were healthy thrifts. I mean you're talking about, many of these thrifts weren't very much healthier than the ones they were rescuing, but yes, there was some effort to consolidate the thrifts on a basis in which the surviving enterprise would be less likely to fail than the one that was being rescued, which may not be a great improvement in the overall survivability factor, but that's what they were trying to do. Q And ifthe healthy thrift had positive tangible capital that it was bringing to the table then that would be a benefit to the insurance fund that now there's an additional buffer between it and the losses, right? A It could be, as long as it didn't deplete that capital by investing it in a vast amount of losses that were out there somewhere else. Q But even if those losses were huge and ultimately doomed the whole project, at least the Government would be better off for having had that tangible capital that the healthy thrift brought to
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the table; is that true? A Yes, but the healthy thrift might not enjoy the process if that took place. Right. Fair enough. Q Serve your country by dying for us, A not necessarily a strategy everybody likes to follow. Q Right. And the new types of lending
there? Well, yeah, I just was going to fix it Q but I didn't want to -You can say, I suppose you could say A it either way. If you prefer to say regulatory efforts, that would be alright with me, it means the same thing. Yes. Right. Okay. What are you Q talking about with respect to the Federal Home Loan Bank there, how was it lagging and ineffective? Well, it was my understanding at the A time, and partly based on my discussions with Professor White, that the regulatory population was quite small and it had been subject to some efforts by the Reagan Administration to, you know, cut back on government and budget restrictions and that the regular -- the inspections that were required to be made were often made late and that the reports of inspections took longer than they might have otherwise done until there was a general recognition that the thing was falling behind schedule and, therefore, when you're regulating something that gets in trouble and the time it takes to regulate them is widening, you're losing control of that part. Page 101
and assets that were pennitted, this was commercial
real estate lending? Those are the ones which we have A discussed, yes. Q Okay. And that was all part ofthe 1982 legislation? A Yes. Q And the regulators understood that commercial real estate lending was riskier, right? A They did. They did. But, you know, there were many things. Some S&L's engaged in a great deal of investment in junk bonds, for example, they're among Michael Milken's greatest clients were several junk bond -- or several S&L's. And there were some who took their right privilege to invest
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famous one in Arizona called The Venetian that failed. So in some ways it forced the S&L's to be yield chasers and to accept a greater amount of risk
in order to get a higher amount of interest income
so as to offset their other problems. Q They were yield chasers because they had these huge problems and -A They needed yield. Q Right. The only way -The only way they could get yield in a A sense was they were let out of the box and go get yield, okay, so we're going to get it from whomever we can and we like the ones with the most amount of yield and some of us were not able to tell the difference in the risk. Q And the reason they were in this profile was because they had huge negative tangible net worth and to get out ofthat situation they needed yield; is that right? 1 think so, yes. A Okay. Now when you say that there Q were lagging and ineffective regulatory-regulator -- is there maybe a typo, should that be regulatory efforts? A Is that the question, is there a typo
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And your basis for making those Q statements is Professor White's -Well, yes, but it was-A Q Okay. -- as far as my lmderstanding was A
concerned, it was pretty widely accepted, it was
generally known. Q Well, what about the FSLlC, same story? I don't know for sure -A Q Okay. -- whether it fits exactly in there or A not, but it was -- I don't know. Q Okay. Was the regulation of Carteret in 1982 in any way flawed through ineffective efforts? A I didn't detect any sign ofthat when I was looking at it. Q Okay. Did FIRREA fix the regulatory problems that you identifY in Paragraph 14? A I believe that FIRREA was an effort to tighten the regulatory standards because there was some concern about the extent of which the Govemment was having to pay for deposits, so they're insured by the Government, and that many
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repriced. Q And does that delay in disposal tend to depress the price? A It might. Q With respect to -A It depends. The delay actually might take the pressure off the market. If you try to accelerate the disposal and sell everything at once at any price anybody would pay, the prices would be perhaps lower, the sales at the lower price. So if you delay it a bit, you might be trying to keep some of the supply off the market so as to avoid having to take as big losses as you might otherwise have to do. Q And was that a conscious decision of the regulators the strategy that you were just articulating? A J don't know but J believe it was something they certainly had the ability to choose and consider as they went along. Q Okay. J mean, other than the nahrral fact that, okay, you can't sell these assets overnight, what's your basis for saying things were running late? A Well, I think that J was referring
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could have done. Q So you don't think supervisory goodwill was real capital? A I don't. Q Okay. Now, in terms of delaying tactics employed by well-connected S&L owners. A There's some anecdotal evidence of prominent politically connected S&L owners who were able to intervene with the Government to delay regulatory actions or postpone them or one way or another. Q Mr. Keating? A That's right. Well, his is among others but he wasn't the only one. Q Okay. But Carteret wasn't involved in that? A No. Q All right. Now, let's see. The regulators-A This paragraph, by the way, refers to the industry not to Carteret. Q Okay. And regulators were inefficient, what did you have in mind when you wrote that? A I think efficient regulators would
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5 reports or other reasons, then it would simply take 6 longer to know when to do it. 7 Q Now you say tlaccounting infonnation 8 was inaccurate because of specialtrealrnents allowed 9 by regulators," what are you referring to there? 10 A Well, J would be happy to use 11 supervisory goodwill as an example.
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Q When you say it was inaccurate, I mean, it was fully disclosed. A Well, that's true, it was disclosed, someone could look through it and make his own judgment. Q Right, so I don't understand how that would be inaccurate. A Was that a question? Q Is it? J mean, you think that the use of supervisory goodwill was inaccurate? A It gave, it gave a coloration to the financial statement that capital was present when it wasn't, real capital was not there, and that contributed to an inaccurate reading of it by some,
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have detected some of these problems sooner and been able to act on them quicker than they did do. We have evidence that many regulators detected them but as they passed the information up the chain of command to where the, you know, the authority to conduct actions occurred, they didn't result in actions being taken, they were either delayed or postponed or forgotten about it or whatever, and as a result the overall process of administering regulation to this industry became affected by it in such a way you could call it inefficient. Q Okay. Anything else you had in mind when you wrote that? A No more than that, J was making general statements about what I think are generally understood characteristics of the industry at the time which J derived from sources that J have looked at. Q Okay. Now you state that 55 percent of all S&L assets had been taken over by the RTC. Approximately how much in the way of assets are we talking about here, hundreds of billions? A Yeah. Q And was-A J don't know more precisely than that
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at the moment.
wasn't ready or did I have an opporttmity to engage
Q
Well, was it, were a lot of these
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in private equity investments of the sort that were
assets commercial real estate assets?
I assume that some were, I would A imagine the majority were not. Q What do you think the majority were? Mortgage-related loans. A Okay. But Carteret certainly wasn't Q alone in having commercial loans that went bankrupt? No, after 1982 many people followed A the perfectly permitted regulatory pathway to become engaged in commercial loan. 13 Q Right. Now you state where I wanted 14 to skip ahead to Footnote 18 for a moment and 15 explore a few thematic points that you've invested 16 extensively in financial service industry securities 17 and is that on behalf of yourself and your family? Yes, that's what this footnote refers 18 A 19 to. 20 Q Okay. Have you ever been engaged to 21 provide investment advice to anyone else? 22 A No. 23 Q Okay. And what's the largest 24 percentage of a financial institution you've ever 25 owned, I mean, have you ever owned more than 5
going on at that time, so the opporttmity never presented itself. Q Well, I mean, there were some publicly-traded thrifts at the time? 7 There were, but they didn't interest A 8 me at the time. The thing that would have 9 interested me, if anything, would have been the 10 opportunity to come into a private equity 11 arrangement that would do the sort of things that 12 Mr. Perelman and others have done that were very
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successful investments, but I didn't have an option
to do that, nobody invited me to join them so I -Q Right. A -- wasn't there myself in that industry, so it didn't happen. Q Okay. A But I could have. I mean, I have invested in banks before that are in private equity
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situations, so that these opportunities come from time to time.
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percent?
No. No. Q Did you purchase stocks in any S&L's or banks in the period 1989 through 1992? A No. Q Okay. Why not? A I wondered if you'd ask me that A
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before now but not then. Q Right. Okay. So when did you first make an investment in a bank stock or thrift stock? Or let me rephrase that. When did you first make an equity
investment --
8 question. 9 Well, first of all, it was an industry 10 I didn't know sufficiently well to want to bother 11 with having to educate myself about it. 12 Secondly, I mean, it was a troubled 13 industry and in order to invest in a troubled 14 industry you'd have to know more about it than I did 15 and I wasn't willing or had the time to take to put 16 into learning about it, nor was I motivated because 17 I thought it was such a great investment opportunity 18 for me. So that's the answer to that. But I didn't 19 get access to my own capital until I left Goldman 20 Sachs, I had only small amounts of capital before 21 that, and so in 1988 I began to have access to my 22 partnership capital as it was returned to me. I 23 began to invest that in a portfolio of public and 24 private investments of various types. By then, 25 there wasn't much of an S&L industry left and I
In banks? A 8 Q -- in a bank or a thrift? Probably in 1991 and 1992 I bought a 9 A 10 substantial portfolio of bank stocks including 11 Citigroup and some others, Bank of America, and 12 those, you know, those rose in value considerably 13 from that time on. 14 Q Yeah, those were good investments, 15 right? 16 A And the reason I did it was that I had 17 just finished writing a book about the American 18 banking industry and how it had returned to some 19 assemblance of health after having gone through the 20 gates of hell in the prior years, the ones you 21 mentioned before with respect to Citigroup and 22 others who were in a, you know, on the ropes for 23 some years but recovered, and so as a result of my 24 research in this industry I deci ded that investing 25 in those banks would be an interesting thing to do,
30 (Pages 114 to 117)
Alderson Court Reporting 1-800-FOR-DEPO
47e53010-7c47-4318-b5ce-12d9407e6f74
Case 1:93-cv-00531-LAS
Document 267-2
Filed 02/21/2008
Page 14 of 50
Roy C. smith New York, NY
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so I made the investment. Q And you did that in '91 and '92? Around that time. A Okay. Any other thri fts or banks? Q Not thrifts. A Q Okay. Well, I was invited onto a board of a A thrift with the intention that I would be given some stock when the company demutualized and became a public company, I considered it but I declined the opportunity. Q Okay. What thrill was that? It was Montclair Savings Bank in A Montclair, New Jersey. Q Why did you decline? I wasn't convinced that the S&L crisis A was over, I didn!! want to be exposed to any personal liability as a director, I just got my capital out of Goldman Sachs and I didn't want to give it back to some litigant. Q J won't take that personally. But was that a period oftime where the regulators really were going after directors, Neal Bush and Silverado? A Yes. At that time in general terms
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What was the geographic location? A It was a Florida S&L, thrift. I mean it was a thrift-like bank, I think it was actually a bank but it was indistinguishable from a thrift. Q Was it a startup? It had been a startup. A Q And was it a good investment? A Yes. Okay. And why did you -- how did you Q evaluate the opportunity to invest in that? I was approached by a good friend who A worked at Keefe Bruyette, which is one of the leading experts on bank reorganizations and recapitalizations, and I decided that ifhe was going to invest in it, then I could do too. I didn't perform any special due diligence, though I did carefully read the materials given to, me and then there was a, there was an incident when the bank lost some money on a loan matter which J investigated subsequently. I wasn't entirely a passive investor. Q Okay. So you tried to get to the bottom of why did this loan go bad and are there going to be more? A Yes. And I talked to the CEO about
Q
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'89 or thereabouts, yes, there were those things going on. Q Yeah, and so it was a difficult environment? A Well, it was not considered a place for wise adults to go, so I didn't Q Okay. And with respect to the banks were there any other banks that you bought in '9J or '92? A Well -- '91, '92? Q Yeah. I think I just bought a series of A several banks, it was a portfolio of banks, and then I sat on it for a long number of years and then sold it down later, but I also have invested in private banks, startup banks. Q Okay. A You're going to ask me who was that bank and frankly I've forgotten, I bought it from a private equity into a private equity deal. It carne, it was -- it did its job, it got sold and I've forgotten
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